Consumer Imports and Their Impact on Indirect Tax Revenue in Barbados

ABSTRACT Consumer imports have played a vital role in the development of Barbados over the years. It is not difficult to see the link between these imports and indirect taxes since, when consumer items arrive into Barbados, these are subject to import duties, value-added taxes and in some cases, excise duties, all components of indirect taxes, which represent the major tax revenue category of the Government of Barbados. With rising indirect taxes, a Government can use some of these funds to develop a country’s infrastructure and enhance its development. Although some reduction in savings is expected from an expansion in consumer imports (especially if financed by a drawdown in deposits), this loss can be minimisedif some of the taxes collected from such an increase are directed into foreign exchange earning activities. This paper uses regression analysis to see to what extent changes in consumer imports will influence indirect taxes in the long and short run between 1970 and 2001. The results show that in the long run, a per unit change in consumer imports will boost indirect taxes by 0.46% while in the short run, a similar change in consumer imports will increase indirect taxes sharply by 0.78%. This implies a significant impact on Government’s fiscal account in the short run, with some slowing anticipated over the medium and long term. 2